The Road From Africa’s G20 Summit to Trump’s ‘America First’ Priorities

the Geopolitics of Oil: A Shifting Landscape

carolyn Kissane, academic director and clinical professor at the Center for Global Affairs at New York University, leads the conversation on the geopolitics of oil.

FASKIANOS: Thank you. Welcome to the final session of the winter/spring 2023 CFR Academic Webinar Series. I’m Irina Faskianos, vice president of the National Programme and Outreach here at CFR.

Today’s discussion is on the record. And the video and transcript will be available on our website, CFR.org/Academic, if you would like to share these materials with your colleagues or classmates. As always, CFR takes no institutional positions on matters of policy.

We are delighted to have Carolyn Kissane with us to discuss the geopolitics of oil. Dr. Kissane is the academic director of both the graduate program in global affairs and the graduate program in global security conflict and cybercrime at NYU’s Center for global Affairs, where she is also a clinical professor. She also serves as director of the energy, climate justice, and sustainability lab in the School of Professional Studies at NYU. She was named in 2013 by Breaking Energy as one of the top ten New York women in energy, and top ten energy communicator. She’s a member of the Council on Foreign Relations and the National Committee on U.S.-China Relations,and serves on several boards.

So, Carolyn, thanks very much for doing this. We really appreciate it.

I thought we could begin by talking about how has the geopolitics of oil changed, especially vis-à-vis Russia’s war in Ukraine and OPEC’s recent declaration to cut oil production?

KISSANE: Well, first of all, I’d just like to say, thank you so very much for having me.I’m really delighted. I am a big fan of CFR’s Academic Webinars. So, to have the opportunity to participate in this-in this way is very meaningful to me. So, thank you.

So, wow. There is so much happening in this space, the geopolitics of oil. This has been a tremendous fourteen months. Russia’s reinvasion of Ukraine very much upended the geopolitics of oil because Russia is a meaningful producer, one of the top three in the world.

And it’s-you know, it’s caused a kind of a reshaping, a kind of a remapping of the-of oil geopolitics. And we’ve seen some, you know, shifts in how countries think about oil security, in light of larger questions about broader energy security questions. And also, on top of that, is the ongoing energy transition, coupled with, you know, climate change, and the need to decarbonize.

So, there’s just-it’s been quite a-you know, a year and a half, that has really sort of put energy security, and oil security, very much at the forefront of people’s minds.

FASKIANOS: Fantastic.

I thought maybe you had some really interesting data to show us. And if you could walk us through those-the trends you are seeing and really bring it to life, that would be fantastic.

KISSANE: Sure.

So, before I do-I have a couple of slides. And before I share my slides, I think it’s really important that, sort of, we understand how interconnected, sort of, the global energy system is, and how interconnected we are, when it comes to the flows of oil.

You know, some countries are very well resourced-endowed, so they have oil. And other countries do not, so they need to import oil. there’s really no country in the world that doesn’t need oil for larger national security issues. And I think one of things that many people sort of are not necessarily aware of or think about,is the amount of oil that gets produced every day.

So, every day, the world consumes over 100 million barrels a day. And every day, that 100 million barrels has to be-has to be moved. It has to be-you know, as part of getting it into the system, getting it to its respective destinations. And what we’re not seeing-which, maybe some people may have thought that we would see at this point-is we’re not seeing a reduction in demand, but we’re seeing an expansion in demand. And much of that global demand is comin

Key Insights into the Global Oil Market

The United States remains a significant consumer of oil, utilizing over 20 million barrels daily, but is no longer the largest importer – that title now belongs to china. The extent of future demand from China is a key question, notably considering its reopening and the potential impact of accumulated savings – estimated at $2.1 trillion – and “revenge tourism” following three years of lockdown restrictions.

Russia continues to be a major factor in the oil market, fourteen months after its 2022 reinvasion of Ukraine (building on the 2014 invasion). Despite sanctions, Russia is still producing and exporting oil, frequently enough at discounted prices, to countries like Turkey, Singapore, China, and India. The effectiveness of the oil price cap and seaborne embargo to Europe remains a topic of discussion.

The global oil infrastructure is extensive, with over 2,381 operational oil and gas pipelines facilitating transit.Tanker traffic also plays a crucial role in oil distribution.

A significant portion – over 75% – of the world’s oil supply is controlled by state-owned oil companies (NOCs) such as Saudi Aramco and PDVSA of Venezuela. International oil companies like ExxonMobil, Chevron, ENI, and Total also hold a ample share. Understanding the role of NOCs is vital for comprehending the geopolitics of oil, as evidenced by recent OPEC decisions driven by state budget concerns and the desire for increased revenue.

The Impact of Saudi Oil Production Cuts on US-Saudi Relations

The recent decision by the Saudi energy minister to cut oil production, while unwelcome by the United States, is another sign of a relationship that has been tense for the past decade. Saudi Arabia is increasingly pursuing a non-alignment policy, maintaining relationships with both russia and Ukraine, and recently brokering a significant deal between Saudi Arabia and Iran – both key oil producers for China.

Historically, the US-Saudi relationship was built on an “oil-for-security” pact established after World War II. However, with the rise of US oil production, particularly through the shale revolution, American dependence on Middle Eastern oil, and Saudi Arabia specifically, has diminished.

This shift is contributing to a very different Saudi Arabia, presenting a challenge for the United States. The coming summer will be particularly telling, potentially mirroring last year’s situation where the Biden governance tapped into the Strategic Petroleum Reserve (SPR) – the largest withdrawal in its history – to mitigate energy price increases stemming from Russia’s invasion of Ukraine and cushion the impact on American consumers and the global economy.

Looking ahead, the US-Saudi relationship will require increased attention, as it is no longer the dynamic of the past, but a new and evolving one.

Navigating Global Oil Supply: Challenges in China and Venezuela

Recent peak demand – or rather, peak supply – has led to a reduction in oil production capacity globally. Several factors are contributing to this shift,including challenges faced by key players like China and Venezuela.

China’s Shale Oil Development

While there were initial hopes that China could replicate the shale oil revolution seen in the United states, significant hurdles remain. The location of China’s shale reserves, far from water sources, presents a major obstacle. Testing has indicated that achieving the same level of development as the U.S. is proving arduous. potential development in the south China Sea remains a possibility, but is not expected in the near future.

Venezuela’s Potential and Pitfalls

Venezuela possesses the world’s largest oil reserves, but its reintegration into the global economy faces substantial challenges. Political instability and a lack of international oil service providers – with chevron being the sole exception granted a U.S. sanctions exemption – are key impediments.

A shift in the political regime and increased openness could pave the way for Venezuela to become more integrated into the global energy system.However, significant reinvestment is needed to modernize the country’s aging infrastructure, which currently limits production to far below its potential of 2 million-plus barrels per day.

Furthermore, the heavy oil produced in Venezuela carries substantial carbon emissions, posing a challenge as the world increasingly prioritizes low-emission producers. While Venezuela has the capacity and reserves, significant “above-ground risks” currently hinder its ability to regain its former position in the global oil sector.

The Ukraine War & The Acceleration of the Green Transition

Russia’s invasion of Ukraine has underscored the critical importance of the Green Deal and a rapid transition to renewable energy. Dependence on russia for over 30 percent of Europe’s natural gas created a significant energy insecurity when Russia weaponized its supply following the invasion, impacting consumers and industry across the continent.

This has spurred investment in clean energy technologies, with both Europe and the United States enacting policies to support domestic industries.europe is investing approximately $250 billion,while the US has committed around $370 billion towards the energy transition – a move akin to the Inflation Reduction act passed last summer. This is fostering an industrial competition focused on developing and deploying clean energy technologies.

However, the approach to energy transition varies significantly across Europe. While some countries are eager to transition quickly, others will likely experience a slower pace.This is exemplified by the EU taxonomy, implemented in January 2022, which faced contention between France and Germany.France advocated for including nuclear energy, while Germany pushed for natural gas.Ultimately, both were included alongside renewable energies as part of measures for climate change adaptation and mitigation.

This situation has been described as a “race” or “competition,” though ideally, nations are working collaboratively to reduce carbon emissions and integrate cleaner energy technologies into their systems.

The Shifting Landscape of Russian Oil and the Future of Nuclear Energy

Recent shifts in the global energy market have seen Russia adapt to sanctions by rerouting oil trade through various intermediaries and nations. While some countries are reassessing their reliance on Russian oil, taking advantage of lower prices, the trade hasn’t stopped. Previously centered in Europe, Russian oil trading has moved elsewhere, with Russia establishing new trading houses in locations designed to circumvent sanctions compliance. This has led to a situation where some Russian oil traders are profiting significantly from buying discounted oil and reselling it.

Instances like Malaysia reporting production and sales figures exceeding its actual capacity – specifically,1.5 million barrels – highlight this practice, with Russian oil being sold under the guise of Malaysian production. China and India have been key players, both directly utilizing the oil and re-exporting it, often as refined petroleum products due to their growing refining capabilities.

Looking ahead, nuclear energy is gaining renewed attention as a crucial component of decarbonizing energy systems. While facing contention in some regions – exemplified by Germany’s reluctance to extend the lifespan of its nuclear power plants despite the energy crisis – other nations are actively investing in nuclear expansion. China and Saudi Arabia are leading the way in new nuclear builds.

France,initially planning to reduce its nuclear capacity,has reversed course and is now prioritizing nuclear energy for its electricity system. Sweden is also planning a significant increase in nuclear power,driven by net-zero targets. Even Japan, deeply impacted by the Fukushima disaster, is reconsidering nuclear energy due to concerns about energy security and rising prices.

Ultimately, most net-zero pathways incorporate nuclear energy, as demonstrated by projects like the Net-Zero America project from Princeton. Though, a significant challenge remains: the high cost of building nuclear power plants in the United States.

Geopolitical challenges in the Oil Market: A Summary of CFR Academic Webinar Insights

This summary is based on a Council on foreign relations (CFR) Academic Webinar featuring Carolyn Kissane, discussing the geopolitics of oil. The discussion focused on key challenges facing the oil market over the next 5-10 years.

Key Challenges Identified:

Kissane highlighted three major challenges shaping the future of oil geopolitics:

1. Strained International Relations: Tensions between Saudi Arabia and the United States, alongside the evolving dynamic between the US and China (described as a “hot war, cold war”), create significant uncertainty in the global oil market. These geopolitical factors impact supply chains and international energy agreements.
2. Tightening Supply Amidst Continued Demand: Despite efforts to transition to option energy sources, global demand for oil is not decreasing. Simultaneously, oil supply is facing constraints. This combination poses a risk, particularly for economies already facing economic and political instability. Insufficient energy access can disrupt industries, transportation, and essential services.
3. The Need for Resilient Energy Systems: kissane cautioned against prematurely reducing reliance on existing energy infrastructure before establishing robust and resilient alternatives. She emphasized that energy security demands are increasing in complexity, requiring a cautious and strategic approach to energy transitions.

Kissane emphasized the need for vigilance and monitoring of these developments in the coming years, acknowledging a high degree of uncertainty in the oil market.

Further Information:

* Follow Carolyn Kissane on Twitter: @carolynkissane

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* Think Global Health: https://www.thinkglobalhealth.org/